K-ICS to pressure Korean insurers’ capital, Fitch warns

Written by Adam Cadle

23/08/2022

The implementation of the Korean Insurance Capital Standard (K-ICS) starting 2023, together with IFRS 17, will squeeze insurers’ capital buffers, Fitch Ratings has said.

Fitch said it expects the regime to have such an impact “as both assets and liabilities will be measured at market value”.

However, the ratings agency said the K-ICS will not materially change the underlying risk structure or fundamental business profile of insurance operations. It said the effect “could be tempered by a decrease in the market value of insurance liabilities, especially in the current rising interest-rate environment, for policies whose inception rate is lower than current levels.”

No significant changes to the investment mix are expected, although Fitch said there could be some refinements to mitigate the effect of the latest risk changes under the K-ICS. “We think insurers have been allocating a portion of their funds to higher-yielding alternative investments in the last few years to diversify their portfolios and enhance absolute returns.”

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